Perspective on family partnership/buyout investment

Personal Finance
3yFollow

Perspective on family partnership/buyout investment

Kate PasinelliPro Member
Realtor · Thunder Bay, ON · Member since 2015 · 11 posts · 4 votes

Looking for some perspective on a family dynamic investment situation.

Last year my parents/ husband and I partnered on a 12 unit apartment complex. I asked my parents to be active partners and he took out a Home Line of Credit to do so as we couldn’t afford to do it on our own. We made the decision that I could use half of the line of credit to invest and my brother could use the other half of the line of credit to invest with my parents on his venture if he so chooses. I had an amazing property fall in my lap due to my real estate connections (I’m an agent) and utilized the opportunity.

My husband and I own 70% and my parents own 30% of it. We all spent the last year renovating and updating multiple units and I ended up turning 4 units into Airbnb’s and making the building quite profitable. The original thought was that my brother and I have equal opportunity to invest $140k each of my dads line of credit and then in the end the properties that we invested on would be gifted to us and parents would make the cashflow while they were owners. We haven’t wrote the partnership agreement yet and my parents just updated their will and they wrote that when my parents pass the (30%) that they own, it would be divided in half and my brother would own 15% of my building. (I would prefer the first option to buyout before being forced into a partnership, but that’s not the way it was written)

I guess they are second guessing the gifting part of it in the end and that maybe my brother won’t utilize his opportunity and I have more opportunities and experience and they want it to be fair. It seems tough to swollow that now I will have to buy that back and such a higher price even though we have done all the work to increase the value. I understand that they want it to be fair, I’m just trying to get some perspective on if that’s the best way to do it or if anyone has done anything else.

Or if my dad just wants to sell, what’s the fairest way to figure out the buyout. New appraisal and buyout at the new increased value?

Thank you!

0Reply
69 views

Most Popular Reply

Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
3y
Quote from @Kate Pasinelli:

Looking for some perspective on a family dynamic investment situation.

Last year my parents/ husband and I partnered on a 12 unit apartment complex. I asked my parents to be active partners and he took out a Home Line of Credit to do so as we couldn’t afford to do it on our own. We made the decision that I could use half of the line of credit to invest and my brother could use the other half of the line of credit to invest with my parents on his venture if he so chooses. I had an amazing property fall in my lap due to my real estate connections (I’m an agent) and utilized the opportunity.

My husband and I own 70% and my parents own 30% of it. We all spent the last year renovating and updating multiple units and I ended up turning 4 units into Airbnb’s and making the building quite profitable. The original thought was that my brother and I have equal opportunity to invest $140k each of my dads line of credit and then in the end the properties that we invested on would be gifted to us and parents would make the cashflow while they were owners. We haven’t wrote the partnership agreement yet and my parents just updated their will and they wrote that when my parents pass the (30%) that they own, it would be divided in half and my brother would own 15% of my building. (I would prefer the first option to buyout before being forced into a partnership, but that’s not the way it was written)

I guess they are second guessing the gifting part of it in the end and that maybe my brother won’t utilize his opportunity and I have more opportunities and experience and they want it to be fair. It seems tough to swollow that now I will have to buy that back and such a higher price even though we have done all the work to increase the value. I understand that they want it to be fair, I’m just trying to get some perspective on if that’s the best way to do it or if anyone has done anything else.

Or if my dad just wants to sell, what’s the fairest way to figure out the buyout. New appraisal and buyout at the new increased value?

Congrats on such a great property!
So you, your spouse and your parents are on title 70/30. TIC?
And no JV agreement or partnership in writing?

Ok, instead of ending up with you guys 85% and your brother 15% someday, I would ask my parents to will 15% worth of this investment ($70k) of other assets to my brother that would have come to me. 

Maybe home equity or retirement, brokerage, personal property, etc.  The more liquid or equal to $70k the asset is on its own, the better.
No way do I think the brother is entitled to all the value you added in sourcing, improving and optimizing an apt building.  $70k is the value.  

1Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Kate Pasinelli:

    Looking for some perspective on a family dynamic investment situation.

    Last year my parents/ husband and I partnered on a 12 unit apartment complex. I asked my parents to be active partners and he took out a Home Line of Credit to do so as we couldn’t afford to do it on our own. We made the decision that I could use half of the line of credit to invest and my brother could use the other half of the line of credit to invest with my parents on his venture if he so chooses. I had an amazing property fall in my lap due to my real estate connections (I’m an agent) and utilized the opportunity.

    My husband and I own 70% and my parents own 30% of it. We all spent the last year renovating and updating multiple units and I ended up turning 4 units into Airbnb’s and making the building quite profitable. The original thought was that my brother and I have equal opportunity to invest $140k each of my dads line of credit and then in the end the properties that we invested on would be gifted to us and parents would make the cashflow while they were owners. We haven’t wrote the partnership agreement yet and my parents just updated their will and they wrote that when my parents pass the (30%) that they own, it would be divided in half and my brother would own 15% of my building. (I would prefer the first option to buyout before being forced into a partnership, but that’s not the way it was written)

    I guess they are second guessing the gifting part of it in the end and that maybe my brother won’t utilize his opportunity and I have more opportunities and experience and they want it to be fair. It seems tough to swollow that now I will have to buy that back and such a higher price even though we have done all the work to increase the value. I understand that they want it to be fair, I’m just trying to get some perspective on if that’s the best way to do it or if anyone has done anything else.

    Or if my dad just wants to sell, what’s the fairest way to figure out the buyout. New appraisal and buyout at the new increased value?

    Congrats on such a great property!
    So you, your spouse and your parents are on title 70/30. TIC?
    And no JV agreement or partnership in writing?

    Ok, instead of ending up with you guys 85% and your brother 15% someday, I would ask my parents to will 15% worth of this investment ($70k) of other assets to my brother that would have come to me. 

    Maybe home equity or retirement, brokerage, personal property, etc.  The more liquid or equal to $70k the asset is on its own, the better.
    No way do I think the brother is entitled to all the value you added in sourcing, improving and optimizing an apt building.  $70k is the value.  

    1Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    3y

    Talk to your parents and offer to buy them out of the 30% that they own.  Even if you do it over the next 3 years.  Explain that you understand they are trying to be fair, but that your brother has the same opportunity and that you've put all of the work into this (using some of their money) to make it what it is.  If they initially invested $30K, then he could get half of that (minus what is still outstanding on the loan). 

    0Reply
  • Kate PasinelliPro Member
    OP
    Realtor · Thunder Bay, ON · Member since 2015 · 11 posts · 4 votes
    3y

    @Steve Vaughan - thank you Steve! I think the way my dad is looking at is, is that if he invested in an stock and it gained appreciation year over year And then passed away, that stock would be worth X amount more and then split between my brother and I. I think he’s feeling this because my brother didn’t utilize the funds a year ago when he could’ve and now the market is changed and he may not be able to buy it on the same types of property. So now in case my brother doesn’t utilize that opportunity to use his 140K then he will still benefit from what my dad has done with my investment. My brother had the opportunity to partner with my dad last year as well but he decided to buy a four Plex on his own and not partner. Would it make sense to buyout my father for the hundred and $140,000 as quick as I can, so he can then help me brother but then still allow my dad to have 30% of the cash flow moving forward? He is still an active owner and does a lot of maintenance on the property and does a lot of work and my mom works in the Airbnb hospitality.

    0Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    3y
    Quote from @Kate Pasinelli:

    @Steve Vaughan - thank you Steve! I think the way my dad is looking at is, is that if he invested in an stock and it gained appreciation year over year And then passed away, that stock would be worth X amount more and then split between my brother and I. I think he’s feeling this because my brother didn’t utilize the funds a year ago when he could’ve and now the market is changed and he may not be able to buy it on the same types of property. So now in case my brother doesn’t utilize that opportunity to use his 140K then he will still benefit from what my dad has done with my investment. My brother had the opportunity to partner with my dad last year as well but he decided to buy a four Plex on his own and not partner. Would it make sense to buyout my father for the hundred and $140,000 as quick as I can, so he can then help me brother but then still allow my dad to have 30% of the cash flow moving forward? He is still an active owner and does a lot of maintenance on the property and does a lot of work and my mom works in the Airbnb hospitality.

    Owning 30% or 15% of a bowl of soup is a lot different than shares of stock easily sold and separated that you didn't add value to with your own sweat and knowledge.    I get what you're dad's thinking, it's just more complicated with RE ownership. I'd buy whomever out I needed to and say thank you very much. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free